Is It A Gift Or Just Paying Bills?

Here is a typical scenario in a divorce case:  One spouse moves out of the marital home and files for divorce. For the next 10 months, he or she continues to pay the $1,800 mortgage, and two car payments of $400 each to ensure their credit isn’t damaged, and to protect the property from repossession or foreclosure.

Should those payments totaling $12,000 (non-paying spouse’s half the mortgage and car payment of $400) be considered a gift to the other spouse?  Or, should the paying spouse be entitled to reimbursement from the non-paying spouse?

In the past, Courts looked at whether the payment of community expenses were made voluntarily. If they were, the funds were often considered a “gift” to the community unless there was an agreement for reimbursement. This gift presumption was based on the legal duty to provide support for your spouse.  The tricky part is that once the paying party files for divorce, their income is then considered their “separate” property and not “community” property like it was during the marriage (A.R.S. § 25-211(A)(2)).

The answer is now clear thanks to the recent appellate case of Borrow v. Barrow. The Court ruling makes clear that in cases where the facts are like above, the payments that were made on behalf of the non-paying spouse must be considered in the property division.  This provides a more just and equitable result for the payor spouse. This means that the $12,000 that is owed to the payor spouse as a reimbursement, can come from the division of assets, such as greater share of property, cash, property or retirement accounts.

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